Published On: Mon, Jan 28th, 2013

Will Ford’s earnings fire higher or fizzle?

It is that time of the year again. The earning’s season that is. With 68 percent of companies in the S&P 500 beating analysts’ expectations, all eyes are on Ford Motor Company prior to it releasing its earnings tomorrow.

Considering the fact that higher oil prices and a sluggish economy have dealt a “double whammy” to the automobile industry, experts are divided on the estimates that they are assigning Ford.  The consensus number for earnings per share is $1.34 and estimated revenues stand at $134 Billion. Many analysts are bullish on this basis.

Given the fact that emerging markets (including China and India) are doing exceptionally well for Ford, this optimism does not seem misplaced. Of course, the fact that the company is yet to reveal its strategy for the year ahead in the backdrop of continued volatility in the auto sector might be a dampener. The US auto sector that had a near death experience in 2008 and 2009 and had to be bailed out by the government means that nothing can be taken for granted.

The other aspect on which consensus is building up among analysts pertains to adopting a wait and watch strategy until the results are out. With the experience of stock market volatility very much in the air after last year’s shenanigans before the earnings call and the subsequent selloff, the investor community is justifiably guarded this time around. Even after accounting for surprises and downsides, the fact remains that Ford is a stock that has longer term potential.

With the company not needing a bailout and being one of the few auto majors to emerge relatively unscathed from the recession, there is reason for hope and optimism that it will deliver a good result.

This is not to say that Ford isn’t experiencing problems.  Its European operations appear to be on the backfoot, hindered by the ever present economic crisis that the continent is experiencing.  Conditions are so bleak in Europe that it was forced to close its Belgian and UK manufacturing plants at the end of 2012.

Even after accounting for downsides, the risk of further institutional downgrades of the stock is unlikely following the two downgrades it has received in recent years.

One aspect to consider, pre results, is that the company is going through a churn at the top, which portends more investor friendly policies than before. The quarterly dividend has been raised from $0.05 to $0.10 in recent months, which should add luster to the stock price.

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About the Author

- Marcus Holland has been trading the financial markets since 2007 with a particular focus on soft commodities. He graduated in 2004 from the University of Plymouth with a BA (Hons) in Business and Finance.